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Bank of Scotland report

Firms see higher volumes, but subdued output

scottish economyScotland’s private sector firms enjoyed a higher volume of new business during May, expanding at its joint-quickest for nine months.

However, the increase in new work failed to lead to a rise in output, which remained broadly unchanged.

Workforce numbers fell for the sixth successive month amid a further deterioration of outstanding business levels. Elsewhere, price pressures continued as both output charges and input costs rose.

The seasonally adjusted headline Bank of Scotland PMI – a single-figure measure of the month-on-month change in combined manufacturing and services output – fell fractionally to 49.9 in May after registering 50 in April. The latest figure pointed to broadly stable output in Scotland’s private sector.

For the second successive month, new business levels expanded. The rate of growth accelerated to the joint-fastest since August last year, yet remained relatively marginal and weaker than the historical average. The latest increase was driven by Scotland’s manufacturers, who reported the sharpest rise in 21 months. However, the expansion in new work was more muted amongst service providers.

Workforce numbers continued to contract, extending the current sequence to six consecutive months. The pace of job cutting was broadly similar in the manufacturing and service sectors, with a number of panellists linking the decline to the continued downturn in the oil & gas sector.

Price pressures continued to grow. In addition, the increase in input costs was marked. According to anecdotal evidence, higher average cost burdens were linked to a rise in raw material prices, most notably for steel and oil.

Meanwhile, panellists recorded only a slight rise in their output prices, attributed to a combination of cost covering efforts and an increase in wages.

Graham Blair, regional director, SME Banking Scotland, said: “Scotland’s private sector will be encouraged by the quicker expansion in new business levels during May, even if the rise was at a relatively marginal pace.

“However, other areas of the economy are still struggling as job shedding persists and backlogs decline further. Firms will be looking for a further pick-up in demand for Scottish goods and services over the coming months in a hope to revive business activity.”

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